FTX CEO Sam Bankman-Fried has shopped for bargains amid the recent devastation of the industry and said he still has cash to spend if the opportunity presents itself.
It seems strange. Other multi-billion dollar crypto giants went bust this year. FTX’s main competitor, Coinbasehas seen its stock drop 70% and has laid off a fifth of its workforce due to falling crypto prices.
related investment news
However, FTX is somehow emerging as a lifeline in the industry.
The 30-year-old billionaire says it’s a result of hoarding cash, keeping costs low, avoiding lending and being able to quickly go private.
“It’s important for the industry to get through this,” Bankman-Fried told CNBC in an interview at FTX headquarters in Nassau, Bahamas. “It’s not going to be good for anyone in the long run if we’re really in pain and burnout – that’s not fair to customers and it’s not good for regulation.”
The crypto industry has seen billions of dollars wiped out in the weeks surrounding the Terra USD crypto crash and the failure of the crypto hedge fund Three Arrows Capital. Lenders exposed to Three Arrows are the next dominoes to fall. In July, FTX signed an agreement gives it the option to buy BlockFi from a lender after offering a $250 million line of credit. FTX also extended $500 million to Voyager Digital, which has since declared bankruptcy and is in discussions to acquire the South Korean cryptocurrency exchange. Bithumb.
BitcoinThe largest cryptocurrency in the world, has lost more than half of its value this year.
‘Not immune’
While Bankman-Fried crypto exchange FTX is suffering from a downturn in digital assets, he said market share growth has helped offset the pain.
“I don’t think we’re immune to it,” says Bankman-Fried. “But we’ve put a lot of effort into growing our footprint over the past year … and we have a less retail-focused background – retail tends to be more reliant on market sentiment. school.”
Much of FTX’s volume comes from customers trading “at least” $100,000 per day, he said. Bankman-Fried describes the group as “highly interactive, high-volume” and “quite sophisticated” users. It ranges from small volume trading firms to home offices and day traders. According to the company, the demographic of FTX is less price sensitive and relatively good during a crypto bear market.
In addition to its success with professional traders, it is also an expensive land for retail business in the United States. FTX purchased the naming rights to the Miami Heat’s NBA arena, formerly American Airlines Center. It attracted celebrity investors and brand ambassadors including Tom Brady and Gisele Bundchen, and ran a Super Bowl commercial featuring Larry David.
The crypto exchange brought in about a billion dollars in revenue last year, CNBC report in August. Bankman-Fried confirmed the numbers were “on the right track” and there will be a “similar” number this year, depending on how severe the market decline is. He also said the company is profitable.
He pointed out that low headcount is one of the factors affecting profitability. FTX has about 350 employees — about a tenth of Coinbase’s workforce.
“We’ve always tried to grow in a sustainable way – I’ve always been deeply skeptical of negative unit economics, any economics that doesn’t have any real, clear path to it. profit,” he said. “We rented a lot less than most places did, but we also managed to keep our costs under control.”
Bankman-Fried earned a physics degree from the Massachusetts Institute of Technology and began his career as a quantitative trader at Jane Street Capital. He bought his first bitcoin Five years ago, and said he was attracted to the industry by the vast arbitrage opportunities that seemed “too good to be true.” In 2017, Bankman-Fried formed the sole proprietorship company Alameda Research to start a full-time property business. According to the CEO, the company was making a million dollars a day, buying on one exchange in one market and reselling on other global exchanges.
Alameda Research still accounts for about 6% of FTX’s exchange volume, according to the documents watched by CNBC. While Bankman-Fried remains a major shareholder in Alameda, he has resigned from the day-to-day operations.
Bankman-Fried said he has worked over the past few years to eliminate conflicts of interest at Alameda. “I don’t run Alameda anymore – no FTX does. We view it as a neutral part of the market infrastructure.”
FTX has seen incredible growth since Bankman-Fried launched it with co-founder Gary Wang in 2019. It last raised $400 million in January at a $32 billion valuationbringing the total amount of venture capital investment in the past three years to about 2 billion USD.
FTX Trading Ltd. headquartered in Antigua, with FTX Derivatives Markets based in the Bahamas, where Bankman-Fried lives. FTX Trading has acquired companies in Switzerland, Australia, Cyprus, Germany, Gibraltar, Singapore, Turkey and the United Arab Emirates, among other countries.
The exchange has spent about half of its cash on bailouts and buybacks, most recently buying a 30% stake in Anthony Scaramucci’s Skybridge Capital.
“We still have some time to roll it out, if and when it is useful or important,” Bankman-Fried said.
Trade in three days
FTX benefits from becoming a private company this year. FTX doesn’t have the daily ups and downs of a publicly traded stock, especially growth names, which this year have been battered by higher interest rates. Bankman-Fried also said the lack of thousands of shareholders allows FTX to move quickly as it tries to complete transactions over the next few days.
“I really think it’s going to be a lot harder to do this as a public company,” he said. When “you have three days from start to finish to transfer funds, you can’t do a public engagement process around the potential terms of a messy situation.”
Bankman-Fried said many deals were made in a few days, when the team “didn’t get much sleep that week.” Instead, the verbose validation usually appears in a truncated Excel workbook. Finances are not audited. The team had at least some expectations of a loss.
“It is not clear yet whether it will be positive or negative – potentially bullish in case things go well,” he said. “We got to the point where we felt as if we could do something that would have a chance of helping significantly with an amount that we’d be willing to lose if things didn’t go our way.”
It is too early to tell if Bankman-Fried’s distressed crypto bets will succeed. Some companies have said no to the rescue package altogether.
After extending the line of credit to Voyager, FTX and Alameda sought to buy and restructure the company. It outlines Voyager’s plan to buy digital assets and loans at market value. The company that responded to the bid called it “a low bid masquerading as a white knight rescue.”
“It surprised me. It didn’t surprise our legal team,” he said. “Honestly, I just assumed they would see our offer and just say… of course, we’ll accept this.”
Bankman-Fried said there was further discussion and the response was “disappointing.” The problem, he said, is that the proposal doesn’t take any fees.
“If you’re in the business of charging, then maybe our proposal isn’t what you like,” he says. “I believe that’s a low offer for consultants looking to charge in this case. That’s not what I thought. I thought about the client. But it’s the best understanding. my current on what happened.”
Warren Buffett next?
Bankman-Fried’s Latest Moves in Crypto Cash Out comparison with Warren Buffett’s strategy in 2008. The legendary Chairman and CEO of Berkshire Hathaway stopped the flow of blood during the financial crisis with a $5 billion investment in Goldman Sachs. That eventually brought the Omaha, Nebraska-based corporation in $3 billion.
“There are some similarities,” says Bankman-Fried. “There are probably more differences. First, I don’t think Warren Buffett is going to call me the next Warren Buffett. To a recent degree there’s a parallel, which is looking at which assets are where they’re very close. need. capital.”
Bankman-Fried said he’s looking for spots where he can “also make good investments and help support them and their customers and their ecosystem.” Although sometimes only one is offered, not both.
He also applauded Buffett’s long-term and value investing skills. This investor pointed out that “you don’t need to have an innovation or insight, you can do it by combining good decisions with good decisions over decades and add up that.”
Like Buffett, Bankman-Fried signed the Giving Pledge: a promise by the world’s wealthiest individuals to donate most of their wealth to charity. Bankman-Fried said he has given away about $100 million this year, focused on preventing future pandemics. Similar to Buffett, he lives modestly. Bankman-Fried shares a house with 10 roommates and a Goldendoodle named Gopher. He drives a Toyota Corolla and says he has no interest in the over-the-top things of a yacht or Lamborghini.
But the two modest investors have made a clear distinction when it comes to their positions on cryptocurrencies.
Buffett and his business partner Charlie Munger have Criticism of Cryptocurrencies over the years. For example, in 2018, Buffett called bitcoin “rat poison squared”. Earlier this year, Buffett said he won’t buy all the bitcoins in the world for $25 because it “doesn’t make anything.”
Buffett has called the underlying blockchain technology “important” — but hasn’t wavered from the idea that “bitcoin has no unique value.” Blockchains are digital databases that store cryptocurrency transactions and in some cases other data. Its primary use is to power cryptocurrencies like bitcoin. But fans of the technology say it could be used in healthcare, supply chain logistics and other financial sectors.
“I certainly disagree with that,” Bankman-Fried said. “I should hope [Buffett] don’t agree with that either. I don’t think you should run a company if he thinks so, but I don’t think he really thinks so. I think that is most likely exaggeration,” he said. He missed out on some of the power of blockchain – he also missed some of the impetus for it in the first place and what made people want a new tool. “
Correction: Gisele Bundchen is the brand ambassador for FTX. An earlier version misspelled her name.
